Paper: Guidelines

Learning Objectives:

*     Collecting corporate data and information from different sources and using them for financial analysis and valuation.
*     Application of financial performance and valuation tools learned in the course to real-world corporations.

*     Use of technology (computers and the Internet) for analysis and preparation of financial reports.

*     Interpersonal skills through group work.

Note:     The work and writing should be your own. All sources used should be properly cited in the paper.

Expectations: The student should take part in all aspects of the project. Follow the guidelines provided. The data tables and discussion should be presented according to the sequence mentioned in the following section. That way, I can easily find the data/information while grading your work. The work will be graded on the content and quality of your discussion and analysis.

Company Selection: You need to choose any publicly traded company and its compititor. The company selection will be on a first-come-first -served basis. Your report should be in the following format.

1.     Introduction and Company Profiles: (2 pages, single space write-up)

First, describe each company’s origin, major business activities, divisions, product segments, geographical operations, market cap, employee size, and so forth. Next, compare the two companies, briefly highlighting their similarities and differences between them. Change next time – emphasize comparisons between the two firms.

2.     Analysis of Company and Stock Performance (Table 1 and a 2-3 page discussion-single space)

Access http://www.finviz.com/ or http://finance.yahoo.com/  and type the company ticker to find the data needed for this portion of the analysis.  You can also visit the company websites or any other sources and retrieve the financial information. Please provide sources from where you got the data. Compare the two companies in regard financial and stock performance on the following criteria. In each case, identify the measures you have included for analysis, summarize company’s (versus competitor’s) strengths and weaknesses, and include your assessment indicating which one is better.
Note: Use sub-headings for each item for easy readability and grading.

Criteria for comparison:

First you need to identify the each raitos and analyze them based on following groups.
Financial Performance:
a) Profitability ( for example, what are the profitability ratios and analyze their change over the years) b) Growth, c) Liquidity, d) Cash flows, e) Earnings and Dividends, and
f) Financial risk. (For example, from the table 1 you need to identify which one is profitability ratio)
Stock Performance:  a) Stock’s performance during different time horizons, b) 52-week range, c) ATR, volatility, and beta, and d) Stock’s liquidity.
Relative Valuation: Compare the two stocks on seven relative valuation measures in Panel A(column 4) of Table 1. Evaluate them on each of those different measures and finally indicate which one is attractively priced. These measures tend to capture the firm’s profitability, growth, and risk. Therefore, being cheap need not necessarily be construed as “attractive.”

3.     DuPont Model (Attach: Table 2 followed by a 1-page discussion – single space)

What is Dupont analysis and why do we need it. Discuss the strengths/weaknesses of the two companies in each of the ratios contributing for ROA and ROE according to the DuPont equation. Identify the significant year-to-year changes in the ratios and relate them to the underlying factors that have contributed for the improvement (or deterioration) of the ratios. For this, you need to examine the income statements and balance sheets pertaining to those periods and also consider reading the company reports. In your opinion, which company is superior/inferior in regard to the quality and sustainability of ROE? Which of the three components in ROE are improving and which ones are deteriorating? Is a high ROE primarily achieved by a high financial leverage (FL)? Note: Often, changes in corporate financial policies relating to cost controls, acquisitions, working capital management, spin-offs, debt usage, will have impact on the ratios in the DuPont model.

4.     EVA, MVA, and the Value of Common Stock (Table 3 followed by a 2-page discussion, single space)

Table 3 has two parts. In the first part, you would need to find NOPAT, FCF, ROIC, EVA, and MVA of the company for the latest three years (2012, 2013, and 2014). I need you to show your calculations for at least one year. Discuss the changes in those different measures. Is the company showing stability (or growth) and sustainability in those measures? If there are significant changes on a year-over-year (YOY) basis, what are the contributing factors?
In the second part of the table, compute the total value of the firm, value of common stock, and value per share. For the growth rate of FCF, you may use the historical growth rates of EPS and DPS as basis and adjust them by making expectations for the future. Or, you may look up analyst estimates and consider using them. Justify the approach for the growth rate used in your analysis – the growth rate that you would expect it to be sustained over an extended period in the future. Discuss the values (value per share and the current market price) and your expectation of the stock’s potential in the future. Is the stock overvalued or undervalued? Use Excel spreadsheet for your work. Attach the worksheet(s) showing the different inputs used and the related computations.

5.     Reflections (½ page; Single space)

In this section, write about your learning through this project – Is the project helpful in integrating the learning the concepts and analytical tools from text and applying them the real world companies? Have you gained additional knowledge and insights from  the different sources of information and data utilized in the project? What are your overall impressions of corporate finance upon completion of this project?

6.     Attachments
1.    List of references
2.    Tables 1, 2, and 3
3.    Excel spreadsheet(s)
4.    Table containing the data sources (i.e. Income statements,Balance Sheet)

Note:     (1) The quality of the work and writing (computations, analysis, and discussion), neatness, and orderly presentation, will be used as criteria in the determination of grade for this assignment/paper. (2) All work must be typewritten using a word processor. (3) Group members may be asked to submit an assessment of the member’s participation and contributions for use in assigning individual credit.

Some sample List of Companies

Company assignments will be on first-come-first-served basis.

Company pairs

Microsoft (MSFT)        Apple (AAPL)

Table 1: Data for Analysis of Company and Stock Performance (Source: http://www.finviz.com/ PANEL: A    Company Ticker:______    Competitor Ticker:______        Company Ticker:______    Competitor Ticker:______
Index            P/E
Market Cap            Forward P/E
Income            PEG
Sales            P/S
Book/sh            P/B
Cash/sh            P/C
Dividend            P/FCF
Dividend %            Quick Ratio
Employees            Current Ratio
Optionable            Debt/Eq
Shortable            LT Debt/Eq
Recom            SMA20

PANEL: B    Company Ticker:______    Competitor Ticker:______        Company Ticker:______    Competitor Ticker:______
EPS (ttm)            Insider Own
EPS next Y            Insider Trans
EPS next Q            Inst Own
EPS this Y            Inst Trans
EPS next Y            ROA
EPS next 5Y            ROE
EPS past 5Y            ROI
Sales past 5Y            Gross Margin
Sales Q/Q            Oper. Margin
EPS Q/Q            Profit Margin
Earnings            Payout
SMA50            SMA200

PANEL: C    Company Ticker:______    Competitor Ticker:______        Company Ticker:______    Competitor Ticker:______
Shs Outstand            Perf Week
Shs Float            Perf Month
Short Float            Perf Quarter
Short Ratio            Perf Half Y
Target Price            Perf Year
52W Range            Perf YTD
52W High            Beta
52W Low            ATR
RSI (14)            Volatility
Rel Volume            Prev Close
Avg Volume            Price
Volume            Change

Table 2: Data for ROA and ROE Analysis – DuPont Model                                                                                                      (Source: http://morningstar.com  —- Key Ratios)    Company:_____________        2010        2011        2012        2013        2014        5-Yr. Avg.
Net Profit Margin (NPM)
Total Assets Turnover (TAT)
Return on Assets (ROA)
Financial Leverage (FL)
Return on Equity (ROE)
Competitor:_________________        2010        2011        2012        2013        2014        5-Yr. Avg.
Net Profit Margin (NPM)
Total Assets Turnover (TAT)
Return on Assets (ROA)
Financial Leverage (FL)
Return on Equity (ROE)

Table 3: Corporate Valuation (Fill separately for each company)
(Source: http://morningstar.com  —- Financials)    Company:______________________________________        FY2012        FY2013        FY2014
Net Operating Working Capital (NOWC)
Operating Long-term Assets (OLA)
Total Operating Capital = NOWC + OLA
Earnings Before Interest and Taxes (EBIT)
Tax Rate
NOPAT = EBIT (1-T)
Depreciation
Operating Cash Flow = NOPAT + Depreciation
Net Investment in Operating Assets
FCF = NOPAT – Net Investment Operating Assets
ROIC % = (NOPAT / Total Op. Capital)*100
WACC % (at 10%)
EVA = NOPAT – (Total Op. Capital x WACC)
Market Value of Common Equity
Book Value of Common Equity
MVA = Market Value – Book Value
Estimating Value Per Share
g = Expected Growth Rate of FCF (%)
(Estimate it  or you may also look at analyst estimates )
FCFt = FCFt-1 (1+g)
Vop = FCF2015 / (WACC – g)
Value of Non-operating Assets: cash & short-term investments
Total Value of the Company
Non-op. liabilities: Short-term debt + Non-current liabilities
Value of Common Stock = Total Value of the Company minus Non-operating liabilities
Number of Common Shares Outstanding
Value Per Share ($) = Value of Comm. Stk / # of Shares
Current Market Price Per Share ($)

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